News  Proposed acquisition of 960ac freehold land in Mukim Rantau, Seremban (1051.3ac before accounting for land to be surrendered to the state government) for RM359.6m or RM8.60psf. The land runs along 2.5km with direct frontage to both sides of the North-South Highway and a direct interchange to the land will be proposed. It is also very near to Sungai Gadut KTM Station (2km away which connects to KL Sentral and Rawang) and is 8km away from the Senawang toll (refer overleaf). Their total GDV (including unbilled sales) will increase by 22% to RM41b.

Comments  Earmarked for township development with GDV of RM7.5b. It will be a gated-guarded township and the first phase will feature terrace/super-links priced from RM350k/unit onwards, which should be easily digestible by the market (refer overleaf).

 Land cost is fair. At RM8.60psf, we reckon this is comparable to Matrix Concept’s Rasah Kemayan land transaction back in Jul-13 of RM7psf. There are land conversion premiums of c.RM35m, bringing total land cost to RM395m or 5% of GDV. This is considered attractive compared to current landbanking cost ratio of 10%-15% of GDV. We expect pretax margins of 20%, which is line with their mass housing township.

 The first 10% payment is due upon signing the SPA while the remaining 90% is likely due next year. The payment will be settled via borrowings and internal cash. We expect FY14-15E net gearing to increase to 0.38x-0.40x, from our forecast of 0.36x-0.25x, which is still manageable.

Outlook  We were positively surprised by this acquisition as we did not anticipate another sizeable landbanking acquisition this year. We like that MAHSING is replenishing its affordable township landbank and participating in the Greater Klang Valley play, which has benefited MATRIX’s Bandar Sri Sendayan and IJMLAND’s Seremban 2 townships. Meanwhile, its FY14 launches mainly comprises of affordable housings, which should be digestible by the market.

Forecast  No changes to FY14-15E estimates as significant contributions will only be felt from FY16 onwards.

Rating Maintain OUTPERFORM

Valuation  The project from this new land increases our FD RNAV by 10% to RM4.01. Hence our TP has been increased to RM2.71 (from RM2.45) based on an unchanged FD RNAV discount of 33%, which is inline with our sector average. The stock is a laggard amongst the big boys, although it has delivered headlines KPIs and earnings as per investors’ expectations. At last traded price, the stock is trading at trough valuations of 10.0x-8.7x PERs for FY14-15E with decent net dividend yields of 4.0%-4.6%, respectively. We laud the company for its continuous landbanking activities amidst the current challenging environment and its ability to manage its balance sheet.

Risks to Our Call Unable to meet sales targets or replenish landbank.

Sector risks, including additional negative policies.

Source: Kenanga